The personal blog of Peter Lee a.k.a. "China Hand"... Life is a comedy to those who think, a tragedy to those who feel, and an open book to those who read. You are welcome to contact China Matters at the address chinamatters --a-- prlee.org or follow me on twitter @chinahand.

Thursday, November 02, 2006

Follow Kim Jung Il's Money--But How Far?

I think the Chinese forced North Korea back to the Six Party talks.

But David L. Asher and Stuart Levey want some credit.

In a backgrounder in today’s LA Times intended to show that we’re not just carrying Beijing’s water on North Korean policy, Asher (State Department’s point man for illicit Pyongyang activity) and Levey (Treasury undersecretary for “investigating terrorist financial webs”) talk up their globetrotting efforts to bring the North Korean financial system to its knees, in particular through the U.S. assault on Banco Delta Asia.

In the article, Asher asserts:

“Banco Delta was just a thumbtack against their skin...We knew that behind the skin was a central artery. When we pricked it, blood was going to start coming out fast.”

I think he got the pinprick part right.

We’re talking about a ridiculously small amount of money, even for North Korea—or Kim Jung Il personally, for that matter:

Kim was hit hard by the sanctions imposed upon the Macao bank, which froze about 24 million dollars of his personal funds, money he used to control the country, to buy Mercedes and expensive watches for high-ranking officials on festive occasions, and to buy food for ordinary people to ensure they remained loyal.

Cheong Seong Jang, a researcher at South Korea's Sejong Institute, said that without the funds Kim could not give presents to his subordinates.

A report in the Korea Times also implied that we are not talking about particularly sophisticated financial maneuvers, either by Kim Jung Il or the United States.

The U.S. government has figured out most of North Korea’s transactions in a Macau bank and believes they were mostly personal dealings involving Pyongyang’s leadership, a diplomatic source said Wednesday.

Washington has studied North Korea’s transaction records with the Banco Delta Asia, where about $24 million in cash was deposited by North Korea, but frozen by U.S. sanctions....The U.S. found that the bank has produced handwritten transaction data regarding North Korea in addition to official computer records, the source said on condition of anonymity. The bank seemed to have used written records of the North Korean transactions as a way to hide them from official view, the source said.

It doesn’t look like the U.S. engaged in any particularly fancy financial forensics here.

And it doesn’t look like we cracked the North Korean criminal ops dedicated to flooding the world with meth, fake Viagra, and counterfeit U.S. currency, or got a handle on the financial channels Pyongyang uses to transact its missile sales and nuclear-related imports.

This whole thing looks less like a hammer blow against the North Korean economy and more like one of those too-clever pieces of American psy-ops—like the ban on luxury goods in the UNSCR sanctions—meant to humiliate and discredit Kim Jung Il in the eyes of the North Korean elite by forcing him to give out home-baked fruitcake and hand-knitted scarves instead of Mercedes, Rolexes, and XO as Christmas gifts to his disgruntled followers.

In other words, it looks like we got a tip and grabbed hold of Kim Jung Il’s piggy bank.

Make that one of his piggy banks.

A small one.

I would like to think that, as an iron-fisted dictator and height-challenged megalomaniac in good standing, Kim Jung Il has squirreled away more than a measly $24 million, presumably hundreds of millions, in the prestigious and secure confines of Switzerland.

Indeed, that’s what Seong Min Kim, Vice Chairman of the Exile Committee for North Korea Democracy, asserted in testimony before Congress in April 2006:

It is a well known secret that hard currency collected from sales of opium produced with forced labor from children, golds mined, collected from slave labor in the Czech, Russia and counterfeit moneys which is laundered by diplomats is deposited in the banks in Macao and Switzerland. The money is a slush fund for Kim Jung Il's personal use....

I implore the U.S. congress to investigate Kim Jung Il's accounts in the Switzerland banks and freeze those accounts.

Asher and Levey claimed that the move against BDA put the fear of God, or at least Uncle Sam, into other banks and made them hesitant to handle North Korea’s business.

The LA Times article states:

Privately, they threatened to go after much larger banks in Macao, including the Bank of China...which eventually froze some North Korean accounts.

You know what?

I don’t think that the United States has the balls to mess with the Swiss. Or the Chinese, for that matter, not with Beijing buying and holding gazillions of dollars of U.S. debt. And the article reports that the Russians have apparently told us to get lost when we asked them to putting the kibosh on new North Korean accounts in its big banks.

America’s is the world’s military hyperpower but financially we’re not in a position to kick anyone’s door down, unless it’s a clapped out bank in Macao.

Which is one reason why the U.S. took pains at first (hypocritical ones, as we’ll see below) to present the move against BDA as a plain vanilla enforcement move against non-state bad guy activities.

When U.S. action against Banco Delta Asia was announced, the Treasury Department met with a North Korean delegation to clarify, against all conventional wisdom, that the move was not a financial sanction.

The Treasury Department designated BDA as a "primary money laundering concern" under Section 311 of the USA PATRIOT Act.

The Treasury Department stressed that the Section 311 action against BDA was not intended as a sanction against North Korea and should be considered matter completely separate from the Six-Party Talks, the ongoing negotiations on nuclear programs on the Korean Peninsula that involve the United States, North Korea, South Korea, China, Japan and Russia.

Regulatory action was taken against BDA primarily because of its extensive involvement with North Korean entities involved in criminal activities, according to the Treasury statement.

Post-BDA, the United States reversed course.

Using the ceaseless noodging approach that must make the United States a tiresome and unwelcome presence in international diplomatic circles, the Treasury Department has pushed to assert the viability of the BDA action as a precedent for hassling Iran:

Trouble is, last time I looked, the US has sanctions against Iran but the UN doesn’t.

So abandoning the money-laundering pretense and fast-forwarding to overt economic sanctions is a little premature.

But under the weird “my unilateralism is your multilateralism” approach that the US now takes to the international community, the U.S. is trying to create a “coalition of the willing” that would make UN action moot—and pre-empt efforts to defuse the crisis through the UN.

As the title of Edward Alden and Caroline Daniel's article in the May 7, 2006 Financial Times puts it, US seeks de facto financial sanctions on Iran:

The US is attempting to persuade European governments, banks and companies to isolate the Iranian government by engaging in de facto financial sanctions, according to US government officials and advisers.

The tactics are modelled on those used for the first time last year against North Korea. That country’s financial dealings abroad were largely cut off after Washington put pressure on Banco Delta Asia, a Macau bank the US said was facilitating illicit dealings by Pyongyang.

The risk of similar reputational damage has already caused some European banks to cut their dealings with Iran, including UBS and Credit Suisse earlier this year.

John Snow, the US Treasury secretary, last week hinted strongly at the new effort against Iran, saying: “When the US is confronted with a threat that is unreceptive to diplomatic outreach and when military action is not an option, [financial] tools are often the best authorities available to exert pressure and to wield a tangible impact.”

Well, good luck with that.

As the article points out:

Iran poses a far greater challenge than North Korea because it is far more integrated into the international financial system. Iran had $51bn of exports and $48bn of imports last year, according to the International Monetary Fund.

Proliferation of weapons of mass destruction may be bad, but threatening the international billionaires club and its favorite banks with the threat of aggressive U.S. attacks on bad guy assets in third countries is apparently worse.

However, the defiantly unilateral pursuit of unpopular policies that could only succeed with genuine multi-lateral backing (see War on Terror; see Bush Doctrine of unilateral pre-emption; see Proliferation Security Initiative) is the hallmark of the Bush administration.

In one of those revealing passages that illuminates the obstinate, self-defeating solipsism of U.S. security efforts, the LA Times article describes where de facto but piecemeal economic warfare against North Korea gets us (and I give the author, Josh Meyer, a lot of credit for inserting this perceptive caveat):

“Some former U.S. officials also worry that completely uprooting North Korea’s illicit financial network might be unwise, forcing the secretive nation to resort to tactics that could hamper U.S. efforts to spy on it.

“If you crack down in certain areas, it is like squeezing the balloon. It may pop up in an area we can’t monitor,” said John Cassara, a former Treasury and CIA money-laundering specialist.

The financial crackdown already appears to be forcing North Korea into closer arrangements with organized-crime syndicates...

That is particularly worrisome, the officials said, because these criminal outfits have a well-entrenched presence in the United States and are better at clandestinely moving money, illicit goods – and potentially, weapons of mass destruction –than terrorists.

The Bush administration has not shown itself a particularly responsible or able steward of the world’s business.

The US government’s failures in its stated area of expertise—the sophisticated collection and analysis of critical intelligence product, and its responsible, objective, and effective employment—do not appear to justify giving it a free hand to organize economic sanctions against North Korea, let alone Iran.

Therefore, I don’t think it’s going to get world support for pre-empting UN action and the Six-Party talks with some unilateral financial derring-do.

Instead of a crushing blow, Pyongyang gets a slap in the face—and the space to react and adapt.

So what does unrelenting hostility to North Korea—when the United States lacks the ability to destroy the regime and can only antagonize it and force it to become more creative and unscrupulous in its fight for survival--get us?

David Asher gives us our marching orders:

“...it’s absolutely critical for us to crack down much harder on North Korea’s ties to organized crime globally,” Asher said. “It’s going to be a much bigger challenge in my mind than even tracking terrorist finances.”

Thanks a lot.

I think it’s safe to say that driving North Korea into a global alliance with international crime to create a proliferation super-threat and a challenge greater than tracking the terrorist networks that enabled 9/11 is something that few people outside the Bush and Abe administrations would consider an acceptable outcome.

For the rest of the world, I think accommodation and containment of North Korea under Chinese auspices is regarded as a lower cost and lower risk option than giving David Asher and Stuart Levey lifetime employment pursuing an infinitely adaptive and constantly mutating illicit financial network centered on Pyongyang.

2 comments:

http://www.turkishpress.com/news.asp?id=149497oEOUL - US Treasury investigators have found that up to half of the 24 million dollars in North Korean money frozen in a Macau bank is from legal sources, South Korean media said Thursday.